Since January 2012, entrepreneurs have one more option to start a company in Brazil: the Empresa Individual de Responsabilidade Limitada or EIRELI. In this article we will explain the general features of this corporate type as well as its limitations.
Before going to the point of this article let’s remember what are the categories of legal entities that can be formed in Brazil.
- Non-profit company (Sociedade simples)
- General partnership (Sociedade em nome coletivo)
- Limited partnership (Sociedade em comandita simples)
- Limited partnership by shares (Sociedade em comandita por ações)
- Overt/covert partnership (Sociedade em conta de participação)
- Limited liability company (Sociedade limitada / Ltda.)
- Corporation (Sociedade anônima / S.A.)
There is also the category Empresário Individual (Individual Entrepreneur), which is not a legal entity but a business conducted by an individual. The entrepreneur acts in his own name and there’s no legal separation between the person and the business. Also there’s no separation between the company’s assets and the entrepreneur’s patrimony.
Even though the Individual Entrepreneur doesn’t have a legal entity, he still receives a CNPJ number from the Federal Revenue Service. Aside from being used by small companies, this category of company is highly used by autonomous professionals that work as PJ (Pessoa Jurídica), which is an alternative labor regime to CLT's. Several Brazilian companies require employees to possess a CNPJ number, so they can work under the PJ regime.
Now, entrepreneurs can opt for opening a Empresa Individual de Responsabilidade Limitada, known as EIRELI. This organization form was implemented to encourage the formalization of thousands of companies that operate in Brazil informally. Before, a company could only be opened by at least two people, what often generated several fictional partners.
The great innovation of EIRELI is that it can be formed by one single person, the holder of the entire share capital. The minimum capital required to open a company in this category is 100 minimum wages or BRL 62.200 to be registered at the moment of its creation. People that already have a company formed can opt for changing it to EIRELI too, as long as they have the required minimum capital. However, each entrepreneur can have only one EIRELI registered in his name.
The EIRELI follows the same rules as the Sociedades Limitadas which is an important factor, because it allows the entrepreneur to have the same protections of limited liability companies. That is, the company only accounts for its equity with debt, and not the personal property of its owner.
The separation and limitation of liability reduce the risks for the entrepreneur. The business procedures such as registration, amendment and termination are done at the offices of the Brazilian states’ Boards of Trade.
The company registered as EIRELI is defined as a micro enterprise (micro empresa, ME), with annual billing of up to BRL 360.000 or as a small enterprise (empresa de pequeno porte, EPP) with annual billing between BRL 360.000 to 3.6 million.
Regulations: Law nº 12.441
The legal instrument that regulates the operations of EIRELIs is the law nº 12.441. Recapitulating, entrepreneurs that seek to open a company alone have two options:
- Opening a Empresa Individual
- Opening a EIRELI
The basic difference between these two categories is that only EIRELI is defined as a legal entity enjoying limitation of liability and requires a minimum capital to be opened, as we discussed above. EIRELI is allowed to operation as any Ltda. company, even able to participate of bidding processes.
In terms of taxation, entrepreneurs will benefit from EIRELI, because it allows them to create an autonomous entity for full activity, using a less burdensome taxation, with limited liability for debts of the company and without needing another partner. Small businesses registered as EIRELIs enjoy the preferential taxation regime known as Simples Federal.
Important for foreigners
Foreigners cannot apply for an investor visa by starting an EIRELI in Brazil. In order to obtain this type of visa, it's necessary to invest in sociedades (Limitada, S.A. and others).